Meeting targets

November 22, 2020

On misguided decision-making and the worsening wheat crisis

The Pakistan Tehreek-i-Insaf (PTI) led regime’s failure to take timely decisions on overcoming wheat shortages has played havoc with the lives of consumers.

In the last two-and-half years, the price of quality flour produced at chakkis (grinding units) has witnessed a more than 100-percent surge as the price of flour has risen from Rs 35 per kg to Rs 80-85 per kg in the domestic market.

The wheat crisis was triggered during the previous fiscal year when the PTI-led government took the short-sighted decision of allowing export of wheat because of a flawed assumption of surplus availability of wheat in the domestic market.

By October 2019, it was apparent that the actual wheat production was less than the target so that the government reversed its decision and slapped a ban on wheat export. However, it allowed export of certain wheat products such as maida (white flour) and suji (semolina) among others. Meanwhile, wheat was also being smuggled out of Pakistan.

In October 2019, the government finally woke up to the fact that the wheat procured from the farmers was not sufficient and that the stocks would be exhausted by the end of the fiscal year 2019-20. Usually, the government keeps some strategic reserves so that no one can pressure the market. If hoarders make such an effort, the government is in a position to intervene to stabilise the supply and price. After this debacle, the price of flour in the domestic market started escalating. Another factor that played a role in worsening the crisis was that the Sindh government did not procure wheat during the last fiscal year. Initially, the Punjab had imposed a ban on inter-provincial and inter-district movement of wheat. This led to the price of flour rising further in the urban centres of Sindh and many parts of KP.

The fiscal year ended with stocks at a low of 0.6 million tonnes. The government then set a highly ambitious procurement target of 8.2 million tonnes for the current fiscal year. Due to heavy rains, the production target of 27 million tonnes could not be achieved. So, the shortages accumulated and the government took extra time to decide about importing wheat.

First, the private sector was allowed to import wheat but it did not do so because stocks were considered ample and there are not many players in the market in any case. Secondly, the private sector realized that a wheat crisis was looming and refrained from taking a risk. Thirdly, the government did not unveil its subsidy mechanism.

The government took too long in deciding to allow the public sector to import wheat and assessed that the total wheat shortages stood at 2 to 2.2 million tonnes. The prices of wheat in international market continued to rise meanwhile from $180 per tonne in February 2020 to now $294 per tonne in June.

Then the government assessed that the wheat shortfall stood at one million tonnes. This assessment was revised upwards to 1.5 million tonnes. This shortfall was revised upwards a third time, and now the assessment shows that the wheat shortfall is hovering around 2.2 million tonnes.

For policymakers, there are some practical difficulties in the aftermath of the 18th Amendment because there were five governments working, and the Centre required taking everyone into confidence and forging a consensus. Secondly, the Centre also wanted the provinces to contribute to subsidy.

Estimates prepared by the Ministry of National Food Security & Research before the ECC meeting showed that the domestic subsidy requirement was estimated at Rs 66 billion while on imported wheat the subsidy requirement would be Rs 24 billion. So, the subsidy on both domestic and imported wheat would be Rs 90 billion.

The initial stocks of wheat stood at 0.6 million metric tonnes (MMT) including 0.23 MMT in the Punjab, 0.03 MMT in Sindh, 0.05 MMT in KP, 0.01 MMT in Balochistan and 0.27 MMT in PASSCO. The procured wheat stood at 6.6 MMT including 4.08 MMT procured by the Punjab, 1.23 MMT by Sindh, 0.02 MMT by KP, 0.08 MMT by Balochistan and 1.18 MMT by PASSCO. The current stocks of the country stand at 7.2 MMT including 4.3 MMT in the Punjab, 1.3 MMT in Sindh, 0.1 MMT in KP, 0.1 MMT in Balochistan and 1.5 MMT in PASSCO.

The wheat crisis was triggered during the previous fiscal year when the PTI-led government took the short-sighted decision of allowing export of wheat because of a flawed assumption of surplus availability.

So far, the total procurement cost of wheat stands at Rs 331 billion, of which the Punjab has had to bear Rs 209 billion, Sindh Rs 56 billion, KP 3 billion, Balochistan Rs 4 billion and the PASSCO Rs 61 billion. The sale proceeds of wheat are estimated to fetch Rs 265 billion in the country including Rs 160 billion in the Punjab, Rs 46 billion in Sindh, Rs 2 billion in KP, Rs 3 billion in Balochistan and Rs 54 billion in PASSCO.

On domestic wheat, the cost of subsidy has been estimated at Rs 66 billion out of which Rs 49 billion would be required in the Punjab, Rs 9 billion in Sindh, Rs 0.3 billion in KP, Rs 0.1 billion in Balochistan and Rs 7 billion in PASSCO.

On imported wheat, the Trading Corporation of Pakistan (TCP) and G2G (Government to Government) total 1.8 million metric tonnes would be imported with a total procurement cost of Rs 90 billion. Punjab would require 0.69 MMT of imported wheat at a cost of Rs 34 billion, Sindh 0.17 million metric tonnes at a cost of Rs 8 billion, the KP 0.45 million metric tonnes at a cost of Rs 27 billion. Balochjstan will not require imported wheat and the PASSCO requires 0.5 million metric tonnes at a cost of Rs 22 billion.

All told the subsidy required on wheat was estimated at Rs 90 billion out of which the Punjab would require Rs 58 billion, Sindh Rs 11 billion, KP Rs 10 billion, Balochistan Rs 0.1 billion and PASSCO Rs 11 billion.

The government fixed the minimum support price of Rs 1650 per 40 kg for next wheat crop in the country despite the fact that the input cost of farmers for producing a tonne of wheat stood at Rs 1585 and fixing the price of Rs 1650 per ton could not be justified, says the Ministry of National Food Security & Research. However, the federal ministers belonging to urban areas are expressing fears that a further increase in support price of wheat will result in an inflationary pressure. Sindh, on other hand, has fixed the support price of wheat at Rs 2,000 per tonne.

The government has now assessed that total imported wheat of 2.2 million tonnes would arrive in Pakistan by first month of the next calendar year. It is the responsibility of the government to foil attempts at smuggling out and hoarding of wheat. Strict administrative measures are required to avoid a further worsening of the wheat crisis.

The writer is senior staff reporter, The News International, Islamabad

Meeting targets